Michigan will share in a settlement said to be worth $25 billion, but it’s not exactly raining cash on Michigan’s foreclosure problem.

Michigan joined 48 other states in a $25 billion settlement with the country’s five largest mortgage lenders.

The settlement, intended to hold mortgage servicers accountable for what U.S. Attorney General Eric Holder said were “abusive practices,” will provide some relief to homeowners struggling to pay mortgages that are more than their houses are worth.

But the amount of relief is so small, too small to stabilize the country’s still-crippled housing market, said Matthew Heron of Clark Hill PLC in Detroit.

“If you think about it, how could it really solve the problem of $700 billion worth of underwater mortgages?” he asked. “The reason the housing market isn’t recovering yet is a function of the economy, of the free market.”

Heron represents lenders. Though the settlement doesn’t cover the damage to state budgets and individual borrowers as a result of the foreclosure crisis, it does give states’ attorneys general a little bit of resolution without requiring them to invest a lot of resources in investigations.

“The investigations by the attorney generals haven’t resulted in significant settlements, and they do put a burden on the states, which are having economic problems,” Heron said.

But the states and borrowers certainly aren’t going to receive $25 billion worth of relief.

Of the $25 billion, the banks — Bank of America, Citigroup, JPMorgan Chase, Wells Fargo and GMAC/Ally — are paying about $5 billion in cash to federal and state governments, or approximately 1 percent of their combined market capitalization.

Of that, $1.5 billion will be used to establish a Borrower Payment Fund to provide payments to borrowers who lost their homes to foreclosure, according to Michigan Attorney General Bill Schuette. The payments will be as much as $2,000, though details have not yet been worked out.

The payments to state and federal governments will be used to repay public funds lost as a result of servicer misconduct, and to fund programs such as legal aid and housing counseling that the states are providing. The settlement excludes borrowers with Fannie Mae and Freddie Mac mortgages, who make up approximately half of the homeowners in the U.S.

Schuette said in a press release that Michigan residents will receive approximately $500 million dollars, but the only hard cash flowing into Michigan will be $101 million, which will be paid mainly to the State of Michigan. (See “Settlement details,” right.)

That payment is not meant to make up for a foreclosure,” said attorney general spokesman John Selleck. “It’s a punishment for poor customer service by the banks. We were getting calls from people who would be on the phone with a mortgage servicer trying to get some kind of help with their payments, at the same time that the bank was foreclosing on them.”

He said that when the housing market crashed in 2008, it crashed very hard and very fast.

“The banks just didn’t handle their customers the way they should,” Selleck said. “The settlement is to address two main thrusts — horrendous customer service by the banks, and robosigning, which we are still criminally pursuing.”

Michigan has been particularly hard-hit by the foreclosure crisis. Last year, a California-based analytics firm, CoreLogic, reported that 35 percent of Michigan homeowners are underwater in their mortgages.

The deal does nothing to solve the problems in the housing market, which will continue to be a drag on the economy because small business owners aren’t able to create jobs when they have no equity in their real estate, said Kenneth Gross of Thav Gross PC in Bingham Farms. Gross represents borrowers.

What would help borrowers the most, he said, is principal reductions, something the banks have been reluctant to do.

“This settlement doesn’t address any of that. It’s extremely limited to the issues of robo-signing and fraudulent foreclosures,” Gross said.

“Basically what’s going to happen is everyone in the world going to call my office wondering how to get their $2,000,” Gross said. “But no one knows yet who will be eligible to receive what. There have been 1.9 million foreclosures with another 1.9 million still to come.”

The settlements will not prevent individual borrowers from suing their lenders if they have a cause of action, Heron noted.

“What this does do is to free up the attorney generals and their resources to decide what they want to dedicate their time to,” Heron said. “The public settlement funds are being used to prop up the services the states would have a hard time providing.”

If you would like to comment on this story, please contact Carol Lundberg at (248) 865-3105 or carol.lundberg@mi.lawyersweekly.com.

I guess I’m irresponsible. How did I get here? I worked my way through college, paying my own tuition, with the benefit of student loans and scholastic scholarships. I purchased a starter home and followed the advice of the real estate experts – which in the 70-90’s was to extend yourself as far as you can – because residential real estate is a great investment and a guaranteed return and hedge against inflation. A few years later, I sold that home, with a nice $60,000 gain, which I used as the down payment to build our dream home at the time – a nice 4 bedroom home in the suburbs. Twenty years later –yes, I refinanced a couple of times – pulling equity out along the way to pay for my children’s college educations, to help finance their schooling abroad, as well as the summer camp experience and all those “things” that we believed would help our children to be well rounded and ready for the techno advanced next millennium. Yes – along the way, I also obtained credit cards, and carried relatively high balances, with reasonably low interest because I always had a stellar credit history.

So here I am now. In 26 years, I’ve never been late on a payment. Every bank that has extended me credit has been paid – timely and in accordance with the terms set. So what happened? Well – now my house that I paid $290,000 for 20 years ago, that appreciated to $480,000 over that period – is now worth $278,000. My mortgage – well that’s a nice fat $400,000. The President calls this “underwater.” I call this “upside down.” Many in Congress, who oppose aid to homeowners – say, “we’re not going to help the irresponsible.” Worse yet, the banks whom I have never missed a payment – have cut my credit lines so that I no longer have available credit. This action alone has caused my credit score to go into free fall because I now fail the critical “available credit” test.

Am I irresponsible? I have met all of my obligations, each and every day. I paid for my college and repaid my college loans. I paid for my children’s education and I raised two great kids. Now I’m “upside down” “underwater’ and irresponsible? Well – I may be “underwater” and “upside down” based on the value of my home. But I’m not the one that ran my business to the point where I was one day away from causing a catastrophic financial meltdown that could sink the entire world economy. I’m not the one who came hat in hand and begged our government for billions of $$$$$ of aid to stay in business. Who did that? We all know – Wallstreet did. The Banks did. AIG did. These same people are the ones that pumped up the real estate bubble with air — and then let it burst. They are the reason why my home has lost $200,000 in value in 2.5 years, and they are the ones who have put our country into free fall such that no one has the credit or desire to purchase a car. Worse yet – they are the ones who our government must now help or we will all fall off the cliff and become broken humpty dumpties.

Call me irresponsible? I don’t think so. In fact, if you’re not going to provide me any help – then I’ll tell you only once – don’t you dare call me irresponsible.